Why We Struggle (continued)

We Are Caught in a No-Win Spiral and It Affects Others

Our problems with inventory growth and stock outs do not stop with us—the constant swing of order quantities and added expedites may cause our suppliers and manufacturing to have temporary capacity or raw material and parts shortages. 

The variation in order quantities and numbers of expedites makes it appear we have no ability to forecast. The lack of a reliable forecast means no ability to really plan and take advantage of efficiencies or optimize schedules at the supplier and manufacturing level. Any effort to work with them to reduce lead times and prices is met with staunch resistance. They need the time and money to deal with the variation we throw at them. We may see their resistance as a sign that they are unreliable or unwilling to cooperate. This puts more pressure to go back to ordering early and ordering more because of unreliability (action #2) or we begin the process of finding another supplier. But with new suppliers, we assume a level of unreliability until they prove themselves. We are right back to ordering more and early. And the new suppliers will quickly learn they have to deal with our variability.

We may dump excess inventory to clean things up, but the inherent error rate of forecasts and our actions to deal with the errors cause the cycle to repeat. To cope, we can find ourselves discounting on a regular basis. Do it often enough, and our customers begin to anticipate our periodic house cleanings. They withhold orders to get a better price; and with a better price, they glut themselves on inventory. This starves future demand and makes it extremely difficult to forecast. We find ourselves spiraling again by cycling back holding inventory because we think the demand is late (action #4) then attempting to reduce inventory using items that are selling (action #6) then protecting the customer when there is a failure (action #3) then discounting to dump returning excesses (action #7).